Bitcoin strength driven by correlation to rising Trump election odds, with MicroStrategy a leading indicator: Bernstein

After a 5% gain on Monday, bitcoin is now up around 14% in October to more than $65,000 — driven by a correlation to Donald Trump’s rising election odds, with MicroStrategy a leading indicator of a potential bullish breakout, according to analysts at research and brokerage firm Bernstein.

“We believe the recent bitcoin strength is being driven by the return of bitcoin’s correlation to Trump’s election odds,” Gautam Chhugani, Mahika Sapra and Sanskar Chindalia wrote in a note to clients on Tuesday. "Despite both sides indicating support for digital assets, the crypto market bid is stronger on Trump’s odds improving on the election prediction markets."

Trump currently leads Kamala Harris by odds of 55.9% to 43.8% to win the presidential election on Nov. 5, according to the decentralized predictions platform Polymarket — with the former President also taking the lead in five of six swing states.

Additionally, Polymarket shows 78% odds of a Republican Senate, 56% odds of a Democrat House and a 39% chance of a Republican sweep compared to 16% for the Democrats.

The U.S.-regulated predictions platform Kalshi also shows a significant divergence in odds, with Trump leading Harris by 55% to 45%. “We believe the bitcoin market strength is recent and reflective of the current spike in Trump odds,” Chhugani, Sapra and Chindalia said.

Polymarket presidential election winner odds. Image: Bernstein.

However, national polling averages paint a different picture, with Harris leading Trump by 49% to 46% as of Oct. 12, within the margin of error, according to Bernstein.

Last week, the Bernstein analysts reiterated their prediction that bitcoin could reach $80,000 to $90,000 if Trump wins the presidential election next month. While the analysts expect bitcoin to do well long term under either outcome, a win for Harris could see bitcoin test the $40,000 range again, they warned at the time.

MicroStrategy's 'bitcoin playbook' makes it a leading indicator of strength

MicroStrategy’s stock has outperformed bitcoin this year, gaining 191% in 2024 compared to bitcoin’s 55%. However, the firm’s “bitcoin playbook” strategy makes MSTR a leading indicator of bitcoin’s strength, almost like a corporate bitcoin index, according to the analysts.

“MicroStrategy made the most of the bitcoin lows by issuing equity, convertible debt (close to $2 billion) to buy the bitcoin dip and has got rewarded for it,” they said.

MicroStrategy has aggressively acquired bitcoin since 2020, leveraging debt and equity to maximize returns and outperform many traditional investments. The firm’s latest purchase of 7,420 BTC +1.28% announced last month took its holdings to 252,220 BTC , currently valued at over $16 billion, against a total cost of around $9.9 billion and $4 billion worth of debt. That’s the equivalent of 1.2% of bitcoin’s total 21 million supply — making MicroStrategy the largest corporate bitcoin holder in the world.

Looking at recent price action for the stock, similar to bitcoin, MSTR initially peaked in March this year before entering a months-long correction phase. However, unlike bitcoin, MicroStrategy stock already broke out of that consolidation last week and has continued to accelerate.

MSTR/USD price chart. Image: TradingView.

Last week, Michael Saylor, founder and executive chairman of MicroStrategy, said the company’s endgame was to be the leading bitcoin bank — ultimately growing to become a trillion-dollar company.

“Super bullish bitcoin. 100% directional correlation with Michael Saylor’s MicroStrategy. Clear sign that we will blow through old BTC highs imminently,” 1Roundtable Partners and 10T Holdings founder Dan Tapiero said over the weekend. “Correlated markets simply lead and lag each other at different times. At the moment MSTR is just leading… bitcoin to catch up now.”

Signs of a switch from AI diversifiers to pure-play bitcoin miner stocks

Meanwhile, there are signs of a recent switch from AI diversifier stocks to pure-play bitcoin miners amid a potential bullish breakout for the cryptocurrency, according to Bernstein.

AI diversifiers have benefitted from a surge in demand for high-performance computing and AI data center hosting services, given their valuable power contracts pipeline. However, pure-play firms have argued the return on bitcoin mining’s cheaper infrastructure and faster energization is far quicker than AI gestation periods, especially amid a potential bull run.

While there has been a clear preference for bitcoin miners focused on AI data centers this year, with Core Scientific the strongest performer, up 277% in 2024, and pure-play miners have underperformed, they have shown signs of a bottom in the last 30 days with Riot up around 25% and CleanSpark up 20%, the analysts noted.

2024 returns - bitcoin vs. crypto equities. Image: Bernstein.

“Pure-play miners produce bitcoin post-halving in the range of $40,000 to $60,000 today. For them to make margins, bitcoin's price would have to claim all-time-highs crossing $74,000 and only above $90,000 would we expect the mining to be profitable and break-even against diverting the power to AI data centers,” Chhugani, Sapra and Chindalia said. “As bitcoin continues to gain strength, we expect the pure-play miners to catch up with the AI focused miners.”

Gautam Chhugani maintains long positions in various cryptocurrencies. Bernstein and its affiliates may receive compensation for investment banking services from MicroStrategy.